The Peninsula Foundation

Tag: FDI

  • Vietnam: Economic Prospects in Post Second Wave Covid-19

    Vietnam: Economic Prospects in Post Second Wave Covid-19

    The global community is into the ninth month of the COVID-19 pandemic and international efforts to develop a vaccine are at advanced stages.  Meanwhile in Russia over 250 Moscow residents received a dose of Sputnik V[i] and the Chinese Center for Disease Control and Prevention (CDC) has announced that the vaccine will be ready by November this year.[ii]Similarly, many American, British, European, and Indian companies are developing the vaccine which is at different levels of trials.  While the above progress is very encouraging, the global COVID-19 infections continue to rise and as on 13 October, according to the World Health Organisation (WHO), the total confirmed cases of COVID-19 were 37,601,848 people including 1,077,799 deaths.[iii] The top four countries with the highest infections were the US, India, Brazil and Russia.

    Vietnam’s COVID response since 23 January 2020, when the first case was detected, has been noteworthy. It successfully contained the spread of the virus by instituting local quarantine measures in early stages, declaring a state of emergency in February, and banning flights to and from China. For the next two months, Vietnam maintained strict COVID related measures including national lockdown and it was only in late April that some restrictions were removed in localities if they had contained the virus; but non-essential public services remained suspended. The opening up continued slowly with the resumption of flights to select destinations and cross-border travel restrictions were lifted. Meanwhile, Vietnam registered to buy a Russian Covid-19 vaccine as also developing vaccine on its own.

    In August, the second largest COVID-19 outbreak (after Danang) was reported in Quang Nam Province. The ‘second wave’ has now been successfully controlled.

    However, in July, Danang, a tourist hotspot, reported several new cases and a massive evacuation of nearly 80,000 tourists was undertaken. In August, the second largest COVID-19 outbreak (after Danang) was reported in Quang Nam Province. The ‘second wave’ has now been successfully controlled. As of 15 September, in Vietnam (total population 95,540,000) there were 1063 cases; 35 deaths; 261,004 tests had been conducted, and 11cases per million was recorded.[iv]

    Vietnam’s economic outlook in the ‘post-COVID Second Wave’ is a mixed bag of opportunities and challenges. There are at least four issues which merit attention. First, the Vietnamese economy, like any other global economies, suffered due to the pandemic. The 2020 first-half growth was about 1.8% compared with 7% in 2019 (year-on-year), but the Vietnamese economy has shown enormous resilience when compared with major global economies who have recorded negative growth. This is due to the proficient handling of the pandemic and the country is now on a quick and steady recovery path. The HSBC has revised Vietnam’s 2020 growth forecast from 1.6% to 3.0%.[v]

    It is also important to mention that the Vietnamese government has offered attractive incentives to multinational investors to help them “move up the value chain” and build supply chains in the country.

    Second, there are clear signs that Vietnam continues to be an attractive destination for foreign investments. This trend is not only due to global conglomerates moving out of China and seeking new destinations with attractive options for setting up of their businesses, but Vietnamese handing of the pandemic has provided them enormous business confidence in the country. According to the Ministry of Planning and Investment, total foreign investment in the first half was worth US$18.47 billion.[vi] Japanese (Panasonic), South Korean (LG Electronics), US (Foxconn; Apple) and the European (Heineken) companies moved to Vietnam. It is also important to mention that the Vietnamese government has offered attractive incentives to multinational investors to help them “move up the value chain” and build supply chains in the country.

    Third, is about renewable energy. Vietnam’s current energy generation mix is skewed towards coal (18,516 MW) and hydrocarbons (8,978 MW). Notwithstanding the COVID-19, the country’s average electricity consumption per day during the first few months of 2020 was 615 million KWh, an increase of 7.5 per cent compared with 2019.[vii] It is estimated that “Vietnam’s energy demand will increase by over 10 per cent by the end of 2020, followed by an eight per cent growth per year in 2021 to 2030.” The “government wants to reduce its greenhouse gas emissions by eight per cent by 2030” for which investments in renewable sources of energy such as solar and wind would have to be made,

    Fourth, is about immersion in Industry 4.0 technologies. There are now clear trends of widespread digital transformation across the globe and is impacting every aspect of the industry from commercial operations, technology management, use in fintech to support banking and financial services, new business models through analytics, and human resource management.  These technologies can potentially boost productivity and improve Vietnam’s GDP. For that innovative national policies for growth are needed. Also, the human resource would require ‘up-skilling, reskilling and retooling’ to embrace these technologies.  The industry leaders too have to recognize the importance of educating themselves and using new technologies as also adopting innovative models for their operations.

    Vietnam should build upon its successes of handling the COVID-19 pandemic and ‘build back better’ by offering long-term stimulus for investments and accord high priority to zero-carbon technologies to spur inclusive and resilient growth.

    Finally, Vietnam should build upon its successes of handling the COVID-19 pandemic and ‘build back better’ by offering long-term stimulus for investments and accord high priority to zero-carbon technologies to spur inclusive and resilient growth. It must adopt strategies for investments in technologies, products and services as also create new jobs tailored for Industry 4.0.

     

    Notes

    [i] “Russia Covid-19 vaccine: Over 250 people in Moscow get inoculated, says report”, https://www.livemint.com/news/world/russia-covid-19-vaccine-over-250-people-in-moscow-get-inoculated-says-report-11600085464168.html  (accessed 16 September 2020).
    [ii] “China coronavirus vaccine may be ready for public in November: Official”, https://www.hindustantimes.com/world-news/china-coronavirus-vaccine-may-be-ready-for-public-in-november-official/story-1DzVCBrdOwleJXxuw0wvyI.html  (accessed 16 September 2020).
    [iii] “WHO Coronavirus Disease (COVID-19) Dashboard”, https://covid19.who.int/?gclid=CjwKCAjwzIH7BRAbEiwAoDxxTlG5T6XZYiHVHBesW5cmAa9DKUytaVgH01haDH10TpmFA3OP-2s_phoCk9sQAvD_BwE  (accessed 16 September 2020).
    [iv] “Southeast Asia Covid-19 Tracker”, https://www.csis.org/programs/southeast-asia-program/southeast-asia-covid-19-tracker-0#National%20Responses  (accessed 16 September 2020).
    [v] “Vietnam’s positive growth in Q2 defies market expectations: HSBC”, http://hanoitimes.vn/vietnam-positive-growth-in-q2-defies-market-expectations-hsbc-313035.html  (accessed 16 September 2020).
    [vi] “Vietnam expects imminent new wave of foreign investment”, https://www.nationthailand.com/news/30392781?utm_source=homepage&utm_medium=internal_referral  (accessed 15 September 2020).
    [vii] “Assessing Vietnam’s Economic Prospects for Foreign Investors After COVID-19”, https://www.vietnam-briefing.com/news/assessing-vietnams-economic-prospects-foreign-investors-after-covid-19.html/  (accessed 15 September 2020).

    Image: Ho chi-min City

  • Vietnam: Bright Economic Outlook post-COVID

    Vietnam: Bright Economic Outlook post-COVID

    COVID-19 is truly a ‘Black Swan’ event and its impact is being felt across the globe. There is widespread worry about the future of economic growth in the post-pandemic period and the World Bank has observed that the pandemic caused the deepest global recession since Second World War. [i] There are at least three reasons which triggered and added to the current crisis. First, it has involved the US and China in a trade war since July 2018, when US President Donald Trump imposed wide-ranging tariffs on China for its alleged unfair trade practices. In August 2019, Trump ordered U.S. companies to “immediately start looking for an alternative to China, including bringing your companies home and making your products in the USA.”[ii] China responded in a similar manner with counter tariffs on US goods. Since then numerous negotiations between them have been held, the last in June 2020 at Hawaii, did not yield any breakthrough. This revengeful tariff war has now blown into a full-fledged trade war and President Trump aggravated with the renewed threat of a “complete decoupling from China.”

    There is widespread worry about the future of economic growth in the post-pandemic period and the World Bank has observed that the pandemic caused the deepest global recession since Second World War.

    Second, amid the trade war, the Corona-19 pandemic made matters worse for the two protagonists. The US accused China of withholding information about the Wuhan virus which was detected in December 2019 and Beijing did not make public the information till January 2020 after which it spread across the globe from Europe to the US. The pandemic has caused massive disruptions in supply chains and some countries have decided to shift businesses out of China. For instance, Prime Minister Shinzo Abe government announced US $2.2 billion stimulus package to help companies shift production out of China back to Japan or elsewhere.[iii]

    Third, the new security law in Hong Kong has triggered an exodus by several companies to move out of China. The Law “targets acts of secession, subversion, terrorism and collusion with foreign forces, with life in prison for those committing the most serious offences”[iv] has scared common people. Many technology companies, startups, entrepreneurs are now confronted with uncertainty and are exploring alternative destinations.[v]

    many companies are being forced to shut down their operation in China and rethink-reevaluate-reinvest in new destinations to remain buoyant for the time being and slowly make their networks more resilient across sectors for the future.

    Furthermore, the pandemic exposed the weaknesses and susceptibilities of many organizations, business houses and industries particularly those that are intimately connected and dependent on China to fulfil their need for raw materials or finished products. Consequently, many companies are being forced to shut down their operation in China and rethink-reevaluate-reinvest in new destinations to remain buoyant for the time being, and slowly make their networks more resilient across sectors for the future. According to a leading business research and advisory company, “tariffs imposed by the U.S. and Chinese governments during the past years have increased supply chain costs by up to 10% for over 40% of organizations” and “popular alternative locations are Vietnam, India, and Mexico.” [vi]

    Vietnam and Thailand have a very good scorecard in their fight against COVID-19 and are rearing to attract investments and kick start the economy.

    Even before COVID-19 pandemic crisis, in 2019, five Asian countries i.e. Malaysia, India, Thailand, Indonesia and Vietnam (MITI-V) or “Mighty Five” had been identified as “up-and-coming players” with high potential for being world’s next manufacturing hubs.[vii] Among these, Vietnam and Thailand have a very good scorecard in their fight against COVID-19 and are rearing to attract investments and kick start the economy.

    According to the World Economic Forum, Vietnam’s economic rise is marked by trade liberalization, domestic reforms through deregulation, lowering the cost of doing business and investments made in human resource development.[viii] During the first six months of the current year, FDI commitments was at over US$15 billion which is a positive outlook for the country. In fact, Vietnam has attracted FDI from 136 countries and territories with nearly 32,000 projects with a combined value of US$378 billion. Among these Japan is the second largest investor with over US$60 billion. Last month, Vietnam’s Ministry of Planning and Investment, Embassy of Japanese at Hanoi, Japan External Trade Organization (JETRO), and Japan Bank for International Cooperation (JBIC) held a virtual conference to explore FDI investments “especially in the context of Japanese government providing a US$2.3 billion aid package for Japanese firms to diversify their supply chains”.[ix]

    Vietnam has many common export products from China such as broadcasting equipment, and could emerge as the “top exporter of broadcasting equipment to developed countries” but is constrained by “smaller GDP and workforce”; but its   progresses in infrastructure could potentially make it a more appealing option.[x]

    Vietnam has attracted FDI from 136 countries and territories with nearly 32,000 projects with a combined value of US$378 billion. Among these Japan is the second largest investor with over US$60 billion.

    Besides, there are other contenders such as Thailand and India to attract FDI and these two countries offer attractive FDI policies and manufacturing infrastructure. In mid-2019, as many as 200 American companies were planning to move their manufacturing base from China and were looking at India.[xi] Similar trends have been reported from South Korea [xii] and Japan [xiii] who could migrate to “production-conducive economies like India, Vietnam and Thailand”.[xiv]

    According to one estimate, FDI “across the globe may decline by 40% this year due to the Covid-19 crisis”[xv], but by all counts and accounts, Vietnam is a resounding success story.  It is a stable economy, possesses necessary infrastructure and facilities, and above all it enjoys “multilateral and bilateral agreements with foreign countries”[xvi], which makes it a popular destination in the post-COVID economic revival outlook.

    Notes

    [i] “Global Economic Prospects”, https://www.worldbank.org/en/publication/global-economic-prospects (accessed 16 July 2020).
    [ii] “Trump says he’s ordering American companies to immediately start looking for an alternative to China”, https://www.cnbc.com/2019/08/23/trump-says-hes-ordering-american-companies-to-immediately-start-looking-for-an-alternative-to-china.html (accessed 30 July 2020).
    [iii] “Coronavirus Impact: Japan to offer $2.2 billion to firms shifting production out of China”, https://www.businesstoday.in/current/world/coronavirus-impact-japan-to-offer-22-billion-to-firms-shifting-production-out-of-china/story/400721.html (accessed 30 July 2020).
    [iv] “Hongkongers contemplate a second exodus”, https://www.scmp.com/week-asia/politics/article/3093517/home-and-away-after-national-security-law-hongkongers (accessed 30 July 2020).
    [v] “Tech Firms Begin to Abandon Hong Kong over Security Law”, https://webcache.googleusercontent.com/search?q=cache:tmQW3Yjx5vcJ:https://www.bloomberg.com/news/articles/2020-07-20/tech-firms-begin-to-abandon-hong-kong-because-of-security-law+&cd=13&hl=en&ct=clnk&gl=in (accessed 30 July 2020).
    [vi] “Gartner Survey Reveals 33% of Supply Chain Leaders Moved Business Out of China or Plan to by 2023”, https://www.gartner.com/en/newsroom/press-releases/2020-06-24-gartner-survey-reveals-33-percent-of-supply-chain-leaders-moved-business-out-of-china-or-plan-to-by-2023 (accessed 30 July 2020).
    [vii] “5 China Sourcing Alternatives In Asia”, https://www.intouch-quality.com/blog/5-alternatives-to-sourcing-from-china (accessed 30 July 2020).
    [viii] “Vietnam races ahead of China in economic growth: opportunities and challenges for Vietnam in the post-COVID- 19 period”, https://timesofindia.indiatimes.com/blogs/ChanakyaCode/vietnam-races-ahead-of-china-in-economic-growth-opportunities-and-challenges-for-vietnam-in-the-post-covid-19-period/ (accessed 30 July 2020).
    [ix] Ibid.
    [x] “COVID-19: Developing countries and shrouded opportunities”, https://www.orfonline.org/expert-speak/covid-19-developing-countries-and-shrouded-opportunities/ (accessed 30 July 2020).
    [xi] “About 200 US firms aim to move manufacturing base from China to India post-general election: USISPF”, https://www.businesstoday.in/current/economy-politics/about-200-us-firms-aim-to-move-manufacturing-base-from-china-to-india-post-general-election-usispf/story/341011.html ( 30 July 2020).
    [xii] “Korean companies keen to move out of China to India”, http://timesofindia.indiatimes.com/articleshow/75130387.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst (30 July 2020).
    [xiii] “Global firms look to shift from China to India”, https://www.livemint.com/industry/manufacturing/global-firms-look-to-shift-from-china-to-india-11587494725838.html  (30 July 2020).
    [xiv] “India isn’t ready yet for foreign companies that want to quit China”, https://theprint.in/opinion/india-isnt-ready-yet-for-foreign-companies-that-want-to-quit-china/415040/ (accessed 30 July 2020).
    [xv] “1,000 Japanese firms looking for investment opportunities in Vietnam”, http://hanoitimes.vn/1000-japaneses-firms-looking-for-investment-opportunities-in-vietnam-313133.html (accessed 30 July 2020).
    [xvi] “Vietnam races ahead of China in economic growth: opportunities and challenges for Vietnam in the post-COVID- 19 period”, https://timesofindia.indiatimes.com/blogs/ChanakyaCode/vietnam-races-ahead-of-china-in-economic-growth-opportunities-and-challenges-for-vietnam-in-the-post-covid-19-period/ (accessed 30 July 2020).

     

    Image: Ho Chi Minh city and Saigon River – Credit: Adobe Stock